Natural gas pipelines coming into service by year end may boost deliveries from the Marcellus shale deposit in the U.S. Northeast by 30 percent, extending a supply glut that helped send prices to decade lows.
As much as 2 billion cubic feet of gas a day are set to flow from the lines in Pennsylvania, Ohio and West Virginia, bound for markets along the Eastern Seaboard, based on government and pipeline-company projections. About 1,000 Marcellus shale wells sit uncompleted, mainly because of a lack of pipeline infrastructure, according to the Energy Department.
Gas prices have dropped 60 percent since 2007 as producers used techniques such as hydraulic fracturing, or fracking, to reach supplies trapped deep in tight layers of shale. Gas futures tumbled to $1.902 per million British thermal units in April, the lowest price since 2002, as stockpiles ballooned during a mild winter and record U.S. production.
"There are new pipelines coming up and more Marcellus gas is going to flood storage going into winter," Phil Flynn, senior market analyst at Price Futures Group in Chicago, said in a phone interview. "Unless you get a really cold winter, prices are going to be in the $2 range."
Natural gas for October delivery rose 3.5 cents, or 1.2 percent, to $2.959 per million British thermal units at 9:35 a.m. on the New York Mercantile Exchange. Prices are down 1 percent this year.
The futures have averaged $2.679 since the April low after rising as high as $3.277. Prices may average $3.20 per million Btu during the first quarter of 2013, when demand peaks, based on the median of 18 analyst estimates compiled by Bloomberg.
Higher prices are all predicated on more normal space heating this winter and demand from power generators burning gas instead of coal, Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York, said in an interview last week. Viswanath expects first-quarter prices to average $3.60 per million Btu.
Cabot Oil & Gas Corp., which pumps gas from Marcellus deposits in Pennsylvania, has a break-even point that's "probably below $2," Chief Financial Officer Scott Schroeder said last week.
About 4,525 miles of interstate gas pipelines serving consumers from Maine to Virginia have been put into service since 1996, Energy Department data show. About 693 miles of lines in the Marcellus, with a daily capacity of 8.06 billion cubic feet, are planned, under construction or already in service, according to Federal Energy Regulatory Commission data going back to 2006.
New pipelines can quickly add 1 billion cubic feet a day of Marcellus gas to the market and as much as 2 billion, as projects with 3.5 billion cubic feet of additional pipeline capacity will be completed from September through December, Viswanath said. Marcellus gas output in May averaged 6.85 billion cubic feet a day, according to the most recent Energy Department data.
Shale gas has been key to the country's move toward energy independence. Production gains helped the U.S. meet 81 percent of its energy demand in 2011, the highest level since 1992, according to U.S. Energy Department data.
TransCanada Corp., based in Calgary, is reversing its Niagara pipeline to start moving Marcellus gas from West Virginia into southern Ontario in November, Karl Johannson, executive vice president of natural gas pipelines with TransCanada, said.
"It's a very large resource and it's going to change the flow of gas in North America," Johannson said.